We've been following this case for years. An intermediate appellate court threw out the verdict against attorneys who stole from the settlement fund based on a later-discredited and -disclaimed affidavit from Ken Feinberg; the Kentucky Supreme Court ruled that that affidavit didn't create a factual dispute, but simply opined on legal issues that the lower court correctly disregarded. Further litigation is still pending against Stan Chesley. The opinion doesn't appear to be online yet. [Courier-Journal; earlier on Point of Law; 2007 summary]

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The textbook theory behind American governance describes the process like this: Congress passes a law regulating a field of endeavor and authorizing a regulatory agency to "fill in the gaps" by adopting regulations that will clarify where the boundaries lie between permitted and prohibited behavior.

Unfortunately, the SEC's approach to implementing portions of the JOBS Act relating to private sales of securities seems to have gotten it backwards.

On July 10, 2013 the SEC issued three releases relating to sales of private securities pursuant to the JOBS Act. Two of those releases adopted regulatory changes that will become effective on September 23, 2013. A third release, however, merely proposed changes and that proposal is open for public comments until September 23, 2013. All three releases pertain to the sale of securities in private transactions under the SEC's Regulation D and they are creating a great deal of confusion in the market.

In Illinois a business owner can be charged with a felony for braiding hair or applying nail polish without a license. Unlicensed delivery of letters by bicycle in Chicago's Loop can land a messenger in jail. Chicago's food truck operators are required to install GPS devices, the costly equivalent of electronic ankle bracelets, so that the city can track their whereabouts. The Department of Business Affairs and Consumer Protection's Commissioner has the power to vest any Department employees or inspectors with full police powers, including the right to arrest, to enforce any business licensing provision.

These are only a few examples of how criminal penalties for business-licensing violations have proliferated in laws affecting low- and moderate-income occupations, which are typically set up as small businesses.

Everyone from Gov. Pat Quinn to Mayor Rahm Emanuel recognizes the vital contribution small businesses make to our communities, but it can be easy to underestimate how the layers of red tape can entangle entrepreneurs and make them feel unwelcome. Having these provisions on the books, regardless of how frequently they may be enforced, is a threat hanging over the heads of business owners, especially innovative new businesses with significant job-creating potential. The criminal penalties foster a presumption of guilt and a culture of intimidation in which business owners are afraid to stand up to erroneous or arbitrary applications of the law by regulators or inspectors.

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Candid scholars who study affirmative action law, particularly in the field of higher education admissions systems, must admit that the area is full of instances in which the English language has been twisted beyond recognition. How else could the meaning of the term "equal protection" be so often manipulated? To choose the court opinion in this context based upon the most tenuous application of language, and indeed of logic, would be a challenge. But this fall the U.S. Supreme Court is set to hear an appeal from a decision by the 6th Circuit that may just win the prize. The case, Coalition to Defend Affirmative Action, Integration and Immigrant Rights and Fight for Equality By Any Means Necessary (BAMN) v. Regents of the University of Michigan, (No, I didn't make up that name.) relates to Michigan's successful post-Grutter ballot initiative known as Proposal 2. Via proposal 2, the people of Michigan amended their Constitution, effectively outlawing consideration of race in admission to the state's public universities.

In response, a group of plaintiffs (BAMN) sued, asserting that Proposal 2 violated the Equal Protection Clause of the U.S. Constitution. To its credit, the 6th Circuit began its review by analyzing the amendment using traditional Equal Protection analysis, and held that it was not unconstitutional under the strict scrutiny framework. However, to its shame, the court majority went on to apply a relatively obscure standard it dubbed "political process theory," and found that under the Hunter/Seattle framework Proposal 2 is unconstitutional. Why? Because the amendment resulting from Proposal 2, in the opinion of the court, made lobbying for racial preferences more difficult than lobbying for, say, athletic or legacy preferences.

In the usual irony present in equal protection cases the court attempted to have its cake and eat it, too. On the one hand it acknowledged that "the Constitution does not protect minorities from political defeat: Politics necessarily produces winners and losers." On the other hand, the majority's opinion rested almost entirely on the presumed political disadvantage held by minorities due to the nature of mathematics. Relying on two arguably inapposite Supreme Court cases, the 6th circuit found that "the majority has not only won, but has rigged the game to reproduce its success indefinitely." To reach this conclusion the court had to ignore the fact that the very racial preferences at issue were originally adopted when Michigan's population was more predominately White than the current one. It also rested on a stereotype that diversity proponents claim to fight-that there is such a thing as one minority viewpoint, and one set of interests upon which "minorities" agree. Likewise, it presumed that members of the majority will all vote in lock-step, despite ample evidence to the contrary.

As a practical result of the BAMN case the public universities of Michigan may ignore the will of the people, in its highest from of expression, the Michigan Constitution. More precisely, college admissions committees may ignore the will of the people. They may continue to engage in racial discrimination for the supposed benefit of some members of preferred minority groups, also in spite of ample evidence of the harm they do. The 6th Circuit's opinion is worth reading, if just for the entertainment value. The effort it took the court to justify striking down Proposal 2 under the Equal Protection Clause was impressive, and necessarily lengthy and unclear. Sophistry, after all, relies on a cloud of words to dull the reader's senses. The problem is that there are serious consequences to the silliness behind the nakedly political decision. The supposed beneficiaries will be harmed. Persons who were born into a race that does not benefit from affirmative action will be harmed. A federal court of appeals has allowed the political objectives of a lobbying group for a subset of the population to trump a fundamental right, "whatever" those objectives may be. The principle of state sovereignty has been undermined, and the people of Michigan have been instructed by a few judges that not only are they allowed to tolerate racial discrimination temporarily, in pursuit of a compelling interest, but that they must do so indefinitely, in pursuit of an advocacy group's ideology. Not even the 9th Circuit would buy that.

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Nasdaq had another bad day last week. On Thursday, bringing back unpleasant memories of the troubled Facebook initial public offering, the exchange halted trading in its stocks for about three hours while it sorted through technical problems. Traders' impatience on Thursday is likely to be matched only by the impatience of regulators at the Securities and Exchange Commission, who understandably don't like such events on their watch and want to be seen to be doing something in response. Indeed, SEC chairwoman Mary Jo White wasted no time in issuing a statement promising "to enhance the safeguards necessary for strong market systems," including convening an industry summit and moving forward with Regulation Systems Compliance and Integrity--a rulemaking proposal related to exchanges' information technology systems.

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The Commodity Futures Trading Commission has shown its distaste for the Administrative Procedure Act in connection with regulation. The CFTC avoids the procedural safeguards that are part of the rulemaking process by issuing "non-rule rules". These are staff no-action letters, guidance, and other documents that tell industry what to do, just as a rule would, but don't have the benefit of public comment and regulatory analysis. The CFTC is also cutting procedural corners in other areas.

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A former contract attorney at Robbins Geller writes me about her second-class experience at $33/hour, hired through Special Counsel:

I am an attorney who works on my own cases, but I also work contract jobs, mostly "document review" temp jobs for large firms taking on large-scale litigation. I'm sure you are at least vaguely familiar with our fringe group of half-employed attorneys.

I'm writing because I'm working at Robbins, Gellar, Rudman and Dowd on their class action suit against [Fortune 500 company omitted].

We've worked this job for over a year and a half. We work in a room dedicated for the computer server/old files that is located off of a parking garage. There are no bathrooms and we must ride freight elevators up 20 floors to use the restroom. There is basically no heat and there are no windows. They've attempted to fix the air and/or heat problem but we just bring blankets and coats when it's cold. It can be colder in our area than outside because we are encased in the uninsulated concrete of a parking garage. (we are in california). The firm itself is located upstairs on the top floors of our high-rise building with gorgeous views and sponsored lunches for all employees. I'm sure various OSHA standards are not being satisfied in our area. We were told to keep is hush-hush around building supervisors because this isn't "an area where people are supposed to be working"... We affectionately call it "the burrow". Because we are contract employees, we do not get paid holidays or benefits of any kind. ...

We have not been paid on time numerous occasions, we have also come in and been sent home. I fought with our contract employer for almost two weeks to get them to pay us the "reporting period" pay which is a California Labor Code requirement.

I read an article about you, Ted, recently (on Above the Law). I actually really believe in the case we are working on, but I am fundamentally offended at our conditions, pay and the blatant violations that just keep happening. Most of my co-workers are also frustrated, some have left/been fired for very thinly veiled reasons. One even made a sexual harassment complaint and told it "wasn't a good time" for that.

... I'm sure this is happening everywhere across the country and we are not the only ones enduring this type of treatment by our own collegues, but its made me feel better to at least express my discontent. Its so frustrating to have lay-people always lambasting class action suits because "the attorneys always get all the money" - what they unfortunately don't know, is that yes, some attorneys get all the money, and they do it by canabalizing their own.

...you have my permission to blog all about this - I think that may be the only justice that my co-workers in the dungeon and I will have. And I just feel so strongly that Robbins (and our staffing company, Special Counsel) have really abused us. I have a lot of regard and esteem for my fellow attorneys. I think we have all worked very hard to get to where we are, even those of us on the bottom of the totem pole, so to speak. And to think that the "partners" and associates at Robbins have entirely forgotten what it's like to be on the low end is just, well... mind-numbing to me. Professional cannibalism is how I think of it ...

Are conditions for contract attorneys at defense firms comparable or worse? I honestly don't know. But it's worth noting that when plaintiff-side firms say that they need an award of a substantial multiplier of their lodestar, that even just a 1.0 lodestar would give the decision-making partners a substantial multi-million-a-year profit given how heavily leveraged plaintiff-side work is.

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On Monday, Attorney General Eric Holder announced proposed prison reforms aimed at reducing the population of the nation's overflowing ­federal prisons. Holder cited figures that show the federal prison population has grown almost 800 percent since 1980. "With an outsized, unnecessarily large prison population, we need to ensure that incarceration is used to punish, deter and rehabilitate, not merely to warehouse and forget," he said.

Holder's solution? Stop prosecuting federal crimes. Holder directed all federal prosecutors across the country to stop charging low-level, nonviolent drug offenders with offenses that impose severe mandatory sentences. But there is a far more effective way to reduce the prison population: slash the number of federal crimes. Yes, mandatory sentencing is part of the problem, but the larger culprit is the explosive growth of federal criminal laws. There are 4,500 federal crimes on the books, with new ones being added at a rate of about 500 a year. The laws are deliberately vague, giving prosecutors maximum discretion "to intimidate decent people," as syndicated columnist George Will has observed.

Until relatively recently, ordinary criminal law was almost exclusively the province of state authorities. And with good reason: under the U.S. Constitution, the federal government has only limited power over crime, generally covering things like treason, piracy, and counterfeiting.

How the federal government managed to expand its criminal jurisdiction would come as a surprise to most Americans. Most federal criminal laws are justified under Congress's power to regulate interstate commerce. And so, for example, the courts have allowed the federal government to prosecute arson cases involving apartment buildings on the grounds that the real estate market is part of interstate commerce. But of course the use of the commerce clause is the merest pretext: nobody thinks that Congress was trying to regulate the real estate market by making arson a federal crime.

The Founders did not establish our two-level federal system on a whim. They did it to protect individual liberty. In Federalist 51, Madison argued that federalism (along with separation of powers) would create "a double security . . . to the rights of the people." Constitutional scholar Akhil Reed Amar has argued that the states can "act as a remedial cavalry" by riding to the rescue of citizens victimized by federal power. That's true in a general sense, but given the supremacy of federal law, the states are powerless to help those citizens prosecuted under federal statutes. The nearly un-checked power of federal prosecutors has led, inevitably, to abuse.

Consider the 2002 conviction of Arthur Andersen, which put tens of thousands of innocent people out of work, only to be overturned on appeal. In 1994, a Michigan property developer was arrested for having contractors excavate some sand and place it in a ditch--all on his property--without seeking approval from the Army Corps of Engineers. For this dastardly crime, federal prosecutors sought a sentence of sixty-three months--more than five years. The trial judge flatly refused to put a man behind bars for "mov[ing] some sand." The government appealed, and the case was ultimately settled.

It's true that Holder cannot unilaterally take federal laws off the books -- only Congress can do that. But neither Holder not his boss, President Obama, seem troubled by the unconstitutional breadth of federal criminal law today. Instead, they blame prison overcrowding on racism.

In a speech at the annual meeting of the American Bar Association in San Francisco, Holder cited a recent "deeply troubling report" indicating that black male offenders have received sentences nearly 20 percent longer than those imposed on white males convicted of similar crimes. That is troubling - but it's not the root cause of overcrowding; besides by taking aim at mandatory sentences, Holder is targeting the one part of the justice system that is necessarily color-blind. We won't improve the sorry state of federal prisons while this administration refuses to concede that the real cause of prison overcrowding is rampant over-criminalization.

The SEC finally responded, in a letter, to criticism leveled at the Commission by Representative Patrick McHenry (R-NC), one of the principal drafters of the 2012 JOBS Act. Representative McHenry had previously ripped the SEC's proposed rules regarding private offerings under Regulation D that would (1) require issuers to include mandatory disclaimers in general solicitation materials, (2) require issuers to file general solicitation materials with the SEC at least fifteen days before providing those materials to potential investors, and (3) generally increase the cost of compliance for issuers using general solicitations.

In its response the SEC promised to give "very careful consideration" to Representative McHenry's views, noting that its proposed rules were open for comment and that it would be premature to discuss what alternatives the SEC might purpose. In large measure, however, SEC Chair Mary Jo White largely dodged the criticism leveled by Representative McHenry and avoided any discussion of the specific points raised in his letter.

The SEC's proposed Regulation D rules are still pending public comment until September 23, 2013.

Perhaps one of the more interesting points out of the letter is the SEC's estimate of how many staff hours were devoted to the preparation of the proposed rule: 3,538 hours. That is roughly equivalent to the billable time that two associates in a large law firm would generate in an entire year.

This is an enormously frustrating case. Robbins Geller had $60 million at stake, and threw everything they had at the case, including a "bless-these-fees" expert opinion from Charles Silver. The objector...didn't, and was likely hoping to make himself enough of a nuisance that he got paid to go away, but not too much of a nuisance because then his objection might succeed and he wouldn't get paid. As a result, shareholders were fighting with one hand tied behind their backs, the best arguments were waived, and there's now a precedential opinion that will get misread as applying to more thorough objections.

Judge Easterbrook endorses a market-based rate. But what private actor agrees to pay 30% (or as the opinion calls it, 27.5%) in a megafund case? Easterbrook endorses a sliding scale, monotonically decreasing rate, but notes that the objector failed to raise it below, and therefore the district court's failure to consider the question wasn't reversible error. Would it have been reversible error if the objector had raised it? The implication is yes, especially with the implicit criticism of the Silver opinion, but that's far from sure. How I wish I had done both the objection below and any Seventh Circuit briefing and argument.

Some other observations:

1) The opinion keeps referring to Robbins Geller receiving 27.5% of $200 million. But that's not true. Class counsel asked for and received $60 million, which they split up as $55 million in fees and $5 million of expenses. And the PSLRA says that it is "fees and expenses" that must be a reasonable percentage of the fee. One presumes that the objector failed to point this out.

2) Easterbrook values the risk that Robbins Geller incurred as a grounds for supporting such a large fee. Except risk is an empirical question: even in the district courts of the Seventh Circuit, the majority of PSLRA cases settle; moreover, the vast majority of PSLRA cases that don't settle are largely the cases that are dismissed at the pleading stage before any real attorney time is spent on discovery. This case was riskier because plaintiffs faced a summary judgment motion, but most summary judgments lose. All in all, a lodestar multiplier of 2 would have ex ante more than compensated Robbins Geller for the risk, and, if courts applied risk multipliers consistently, would have been enough to induce them to take the case even if they were risk averse rather than carrying a large portfolio of megafund cases. (This is especially true since Robbins Geller's lodestar itself would give it gigantic profits: they're paying the contract attorneys doing the bulk of the work on the case $33/hour plus a markup to the agency that doesn't include holidays or benefits.) Of course, Easterbrook can't know this when the objector doesn't make the argument.

3) Judge Easterbrook errs, I think, when he presumes that the lack of institutional objectors is meaningful: "Thedifference between 27.5% of $200 million and a smaller award (say, one averaging 20%) could be a tidy sum for institutional investors (including this suit's lead plaintiff, a pension fund), one worth a complaint to the district judge if the lawyers' cut seems too high." Except that's simply not true. The settlement awarded 28 cents a share to class members before fees; the lawyers' cut of that was 9 cents a share; the amount in dispute is between 3 and 6 cents a share. That means an institutional investor who purchased $20 million in stock during the class period—one million shares—has between $30,000 and $60,000 in fees at stake. That's a rounding error to institutional investors: it doesn't even pay to have an attorney evaluate whether the fee is too high or even to follow the docket to see whether there is an objection worth joining. And it's not like class counsel shares the list of class members with objectors to see if there are interested parties. (Update: Todd Henderson reminds me of the paper showing that many institutional investors do not even make the claims for free money under the settlement agreement—if they're not making administrative claims for 70% of the settlement proceeds, they're not going to hire an attorney to attempt to increase their share to 80%.)

In Citigroup, the lodestar and out-of-pocket expert expenses my objection incurred was over $200,000—and would have been much higher if we had been permitted the discovery we had requested. (Given how much the appeals court relied on the Silver report, surely it would have been reversible error to refuse to let an objector depose him. Of course, the objector in this case doesn't even seem to have tried.) So, in the absence of clear precedent entitling objectors to a reasonable share of fee recovery (talk about real risk!), attorneys won't take these cases on contingent fees, and class members have no incentive to spend $200,000 over $30,000 at stake. An attorney willing to litigate my Citigroup objection for 6% of the recovery could have asked for a $1.6 million contingent fee for the $26.7 million victory if the court was willing to award 6%. No one took up my offer, and I had to litigate pro se.

The "institutional investor" thing seems to really be acting as a proxy for "Is this a professional objector hoping for a quid pro quo payout?" If so, one wishes that was the point the opinion made. But if courts want objectors to use a strategy other quick-and-dirty objections followed by quid pro quo payouts, they need to provide the incentive for objectors to invest in the quality of their objections.

An investor would have to have purchased nearly 5% of outstanding Motorola shares during the class period to have enough at stake to mount a legitimate objection in the absence of a contingent-fee attorney. As the Seventh Circuit has stated elsewhere, acquiescence to a bad class action settlement does not equal consent or approval. The same principle applies here, but the appellant failed to make the best arguments.

4) Easterbrook notes that "institutional investors have in-house counsel with fiduciary duties to protect the beneficiaries." Sounds like an entrepreneurial attorney frozen out from the current PSLRA game should be issuing demand letters for malpractice suits, because institutional investors are systematically shirking their fiduciary duty to challenge these oversized fee petitions. Here, it cost shareholders at least $15 million.

Update: the more I look at this, the more I see this as a case of objector waiver. A giant fee reduction was there for the taking had objectors made the right arguments at the district-court and appellate level. But on an abuse-of-discretion standard, the Seventh Circuit was unwilling to require a district-court judge in a PSLRA case to anticipate arguments objectors didn't make. The institutional-investor argument suggests that a district court would be required to reduce fees if this were a run-of-the-mill consumer-class action for a megafund.

Newly-confirmed Labor Secretary Thomas Perez seems to certainly have no problem with courting controversy. After his widely-publicized quid pro quo with the city of St. Paul, Minnesota, which was designed to subvert judicial review of his prized "disparate impact" discrimination theory by the High Court, he has immediately found a new target to try and manipulate into submission. Allysia Finley of the Wall Street Journal recently reported that Mr. Perez has sent a warning shot across the bow of California Governor Jerry Brown over the state's recently-enacted pension reforms:

Two weeks ago, Mr. Perez sent the governor a letter warning that the pension reforms he signed into law last year violate the 1964 Urban Mass Transportation Act, which purportedly protects public transit workers' pension benefits and collective bargaining rights. California's pension legislation, Mr. Perez wrote, "diminishes both the substantive rights of transit employees under current collective bargaining agreements and narrows the future scope of collective bargaining over pensions."

It seems a bit odd that Congress would enact a law that would limit the ability of a sovereign state legislature to negotiate contract renewals dealing with future benefits of its own public employees, which does in fact constitute the substantive aspect of the CA legislation. The apparent implications of Mr. Perez's statement are that 1) any sort of pension reform enacted by a state is illegal, because pension reform done in the present restricts the bargaining position of unions in the future (regardless of the fact that the pension reform is duly-enacted state legislation), and 2) Congress may usurp the federal-state political structure when it is not happy with the results of pension reform done in the state context, under the pretext of a supposedly-preemptive piece of federal legislation.

This all seems odd because Congress did not in fact mention federal restrictions on contract bargaining in the context of future negotiations. Ms. Finley writes:

Thing is, the 1964 federal law merely protects employees' existing benefits under collective bargaining agreements and says nothing about the "future scope" of collective bargaining. California's pension reforms apply only to future benefits for new hires.

Mr. Perez's real play here seems to be to restrict the ability of states to negotiate in good faith with their public unions, while making sure that the liberal power base stays happy. The biggest problem with this tactic is its potential budget-busting effects on the state:

Thus, Mr. Perez is threatening to cut off billions in federal grants for local transit agencies starting Friday if California doesn't fix its reforms to comply with his interpretation of the 1964 federal law. The Los Angeles County Metropolitan Transportation Authority would stand to lose $268 million. Nearly $70 million in funding for Sacramento's Regional Transit District could dry up, thus halting construction on a light-rail line. Santa Barbara's Metropolitan Transit District has warned that it would have to reduce services by 30% and lay off 50 bus drivers.

Mr. Perez might want to make sure that the very public unions he is trying to keep happy do not revolt when the inevitable austerity measures arrive.

Ryan Calbeck, the founder of CircleUp, describes in Forbes how crowdfunding is disrupting capital markets.

As he describes it, the market for start-up financing is roughly $15 billion per year and has not changed in decades. The VCs and angels who make investments in early stage companies have an inefficient process for locating and assessing potential investments.

Caldbeck writes, "their approach to finding opportunities is not meaningfully different in 2013 than it was in 1953. It is an incredibly dispersed, difficult and inefficient market in which buyers (investors) and sellers (companies) have the best chance of connecting if they both attend long angel meetings just as they would have pre-Internet. At least they might get free shrimp along the way."

The prospect for crowdfunding is to create new markets for early-stage capital that will improve efficiencies in the process, generating economic benefits for both investors and entrepreneurs.

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Many independent agencies are governed by politically balanced boards or commissions in order to ensure that their policy decisions are temperate, represent multiple viewpoints, and allow for accountability. Agency decision-making power resides with the commission, the members of which are appointed by the president with the advice and consent of the Senate and therefore can be made to answer for their policy calls. The job of agency staffers is to implement the commission's policy decisions, not make them. The principle that political appointees should be responsible for policy decisions applies in both the rulemaking and enforcement contexts. When agencies forget this principle and start encouraging staff to make key decisions without commission input, government's accountability to the American people suffers.

Commissioner Scott O'Malia of the Commodity Futures Trading Commission pointed out one such instance earlier this week. The CFTC is handing over to the staff broad authority to conduct enforcement investigations and exercise the attendant subpoena power. These investigations are not targeted, but rather are conducted pursuant to "omnibus" orders that allow the staff to go on unsupervised fishing expeditions. A procedural gimmick known as the "absent objection" process could enable the staff to extend the omnibus order indefinitely. O'Malia is particularly concerned about the commission's deference to the staff's judgment with respect to the exercise of the CFTC's increased and uncharted enforcement powers under Dodd-Frank.

The CFTC is not alone in ceding enforcement policy-making authority to the staff. For example, several years ago, the SEC gave its staff the power to issue subpoenas without the commission's sign-off and curtailed commission input in shaping enforcement settlements. This is a dangerous trend because--in the words of Commissioner O'Malia--"Congress intended a decision to bring an investigation to be reflective of a shared opinion of the majority of the Commissioners, rather than a unilateral ruling of the Division of Enforcement's staff." Delegated policy-making subverts the principles of accountability on which independent agencies' legitimacy depends.

The SEC's new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits -- rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the bounty program, the Article shows how amending it to include a qui tam provision for Rule 10b-5 violations would offer several advantages over retaining FOTM class actions. Either way, the bounty program has important and previously unrecognized implications that policymakers should not ignore.

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The New Mexico Supreme Court has ruled unanimously that non-English speaking citizens have the right to serve on state-court juries, with proceedings to delay if necessary to find an interpreter. [AP]

I once took a deposition of a Japanese executive in an antitrust dispute. Simultaneous translation by an interpreter is expensive and logistically difficult; either one needs to take frequent breaks or have a rotating team of interpreters. And the opposing counsel had their own interpreter on hand to make sure that my interpreter wasn't playing fast and loose or making mistakes—what protections will both sides have that the interpreter is fairly conveying testimony and argument?

The decision seems to be a quirk of the New Mexico state constitution, but it also seems to run afoul of federal constitutional jury-trial rights. A savvy defense counsel confronted with a juror who needs an interpreter will want to ensure a free bite at the apple and preserve a constitutional challenge to having someone not conversant in English deciding a client's fate.

Following the example of states like Georgia and Kansas that permit intrastate offerings of securities on a crowdfunding basis, some legislators in Wisconsin are proposing a crowdfunding bill in that state's legislature.

According to reports, Representatives David Craig and Chad Weininger in the Wisconsin Assembly and Senator Leah Vukmir in the Wisconsin Senate are sponsoring the bill that will be unveiled in a ceremony today.

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Representative Patrick McHenry, one of the principal drafters of the JOBS Act, has written a letter to SEC Chair Mary Jo White, ripping the Commission for its proposed regulations lifting the prohibition on general solicitation for certain private securities offerings.

Among its many changes, the JOBS Act required the SEC to lift its ban on "general solicitation" for private securities offerings under Regulation D. (Regulation D is one of several ways that private companies may sell securities to investors without having to register those securities with the SEC.) While lifting the ban on general solicitation was thought to make sense in the context of crowdfunding (an innovation that was also made possible by the JOBS Act) it also reflected the market reality that Web-enabled communication is simply too fast, too transparent, and too fluid to remain subject to the pre-Internet ban on solicitations required by Regulation D.

In its proposed rules to lift the ban on general solicitations, however, the SEC actually imposed new duties on private issuers of securities under Regulation D. In essence, the proposed rules (which are still open for comment) give issuers the choice between a private offering in which general solicitations are still prohibited (now covered by Rule 506(b) of Regulation D) and those in which general solicitations would be permitted (to be covered by newly-proposed Rule 506(c)).

Representative McHenry especially takes issue with the SEC's proposed new Rule 510T which would require any issuer relying on Rule 506(c) to file with the Commission any general solicitation materials that it proposes to send to potential investors prior to sending them. McHenry writes:

"[T]he proposed Rule 510T will require that for the first two years during which the proposed rule is in place, issuers must provide the Commission with all advertisements by the date of first use. Problems clearly exist with the imposition of thise same-day or virtually "real-time" compliance requirement on an enormous market of small issuers that, prior to public advertising, have already raised nearly one trillion dollars per year."

Indeed, given the number of private offerings that take place at any given time, and the potential volume of communications that private issuers might have with the public if the ban on general solicitations were lifted, it is hard to imagine what the SEC would do with the volume of submissions it would receive.

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A few years back, I argued an objection to an appalling settlement in district court. The attorneys got paid and the defendant made a meaningless label change; it was basically identical the Dry Max Pampers settlement without even the fig leaf of cy pres or an impossible refund process. The judge gave an oral ruling from the bench. He praised my diligence and good faith to the sky, and let me know how much he appreciated my taking the trouble to object. And then he rubber-stamped the settlement and gave class counsel everything they asked for. (In hindsight, we should have appealed, but we already had a lot of appeals pending and took our lumps.)

Yesterday, I had the opposite experience. In response to our objection in Wyeth Securities, the district court essentially adopted every bad-mouthing lie and misrepresentation class counsel made about what a terrible person I was, making a series of wrong legal rulings along the way and ignoring one of our actual legal arguments to successfully knock down class counsel's straw-man characterization of it. But when push came to shove, the judge gave us a lot of what my client wanted: an 18.4% reduction in an excessive fee request, meaning $3,037,500 more for the class.

Between a judge saying nice things to me and letting a class get ripped off and a judge saying mean things about me but at least partially looking out for the class, I'm sure class counsel would have preferred the former. (We know that plaintiffs' attorneys prefer $3 million in cash to Ted Frank being insulted because no one in the plaintiffs' bar has offered me a $3 million contract to quit class-action work to focus on writing reviews of five-star beach resorts.) So if a judge criticizes me but the class gets $3M more, I'll take that trade—though one wonders why a judge thinks complaining that class counsel is asking for too much is worse than class counsel actually asking for too much. (Don't cry for class counsel: their $13M award is still more than 3 times their likely exaggerated $4M lodestar for negotiating a settlement where their clients got pennies on the dollar.)

It means CCAF probably shouldn't ask for attorneys' fees, but CCAF's non-profit status and success rate means that it is legally entitled to ask for far more fees than tax law permits it to receive in any given year, so there's no marginal cost to us if we forgo arguing for fees in a particular case. And we'd rather spend time litigating for class members than for our fees.

Some unfortunate dicta in the process: the court held that my client didn't have standing to object to a settlement that explicitly froze out small individual shareholders like herself solely because she didn't take the entirely redundant and futile step of filing a claim form for her $0 recovery. That's just simply incorrect: the objector, as a class member, suffers injury from the waiver the settlement imposes upon her for no compensation, and that injury is redressable if the court rejects the self-dealing by the institutional class representative that favors institutional interests over small-shareholder interests. (Furthermore, there's plainly a problem in claiming that a class action is superior to individual litigation under Fed. R. Civ. Proc. 23(b)(3) if class counsel is going to claim that it's too hard for the aggregated litigation to actually bother to compensate class members.) But do we spend time getting appellate correction of that mistake? Probably cheaper for us to just ask future clients to jump through a pointless hoop in future cases to preempt that argument—though I've also seen class counsel argue "See, the objector likes the settlement because she filed a claim!" And the opportunity cost of pursuing this injustice is not having the time to pursue bigger injustices.

Stockholm Syndrome watch: defense counsel from Simpson Thacher & Bartlett gratuitously supported class counsel's excessive fee request at the fairness hearing. It peeves me when plaintiffs' lawyers look out for lawyers' interests instead of that of their clients, and it peeves me no less when defense counsel do it, too. Unrepresented class members have little choice in the matter, but why a publicly-traded corporation like Pfizer puts up with that is beyond me.

The $3 million fee reduction is the 30th CCAF objection that has met with at least a partially successful result. It also puts CCAF over the quarter-billion-dollar mark in fees knocked out in cases where we objected in our four-year history.

(The Center for Class Action Fairness is not affiliated with the Manhattan Institute.)

I'll be speaking on a panel about cy pres at the 2013 ABA Class Action National Institute on October 23 in Boston. I can't imagine that anything I'll get to say in the ten or so minutes I'll have is worth the $525 to $770 they're charging if you've been reading my cy pres briefs, but perhaps the other events or the CLE or the Boston clam chowda are worth your while.

My fall speaking schedule looks to include Harvard, University of Chicago, and Tulane law school Federalist Society chapters; if you're part of a Federalist Society chapter in those neighborhoods, and would like to have me speak on the same trip, drop me a line, and we'll see about coordinating.

Putative class-action plaintiffs protest that L'Oreal "professional hair care products were falsely and misleadingly labeled, marketed and advertised as "for sale only in professional beauty salons," "exclusive salon distribution," "Exclusive to Kérastase Consultant Salons," and "Available Only at Fine Salons & Spas" (collectively, "salon-only"), when consumers can purchase these products in major retail outlets throughout the United States where professional salon services are not available." It's hard to imagine how named plaintiff Nancie Ligon, who purchased her L'Oreal hair-care product at a Big Kmart Store in Petaluma, California, was possibly injured: after all, isn't the very presence of L'Oreal in a Big Kmart a telling indicator that "for sale only in professional beauty salons" is puffery?

Never you mind. The parties decided that they wanted to settle, but didn't want to settle in the Northern District of California where Ligon had filed her complaint, and forum-shopped a new post-settlement complaint in the District of Columbia. The settlement is reminiscent of Pampers: nothing for the supposedly-injured class, meaningless label changes in the US so future L'Oreal purchasers won't mistakenly think they're in a "fine salon" when they buy L'Oreal at Kmart, and just shy of a million dollars for the attorneys. The six representative plaintiffs—five of whom didn't join the case until it had already settled—get $1,000 each.

Recently, the Manhattan Institute decided to take on the challenging issue of patent "trolling," a practice in which so-called Patent Assertion Entities acquire the rights to a patent and then extract licensing fees from those who infringe upon the covered material. I am proud to say that these efforts have culminated in the release of our latest Trial Lawyers Inc. issue, entitled "Patent Trolls."

The Trial Lawyers Inc. series was formulated in order to shed light on some of the more egregious abuses of power by the trial bar and its related associations. The increasingly business-related focus of these associations has wrongly shifted the main purpose of lawsuits from protecting clients to maximizing profits, largely on tenuous legal theories that harm businesses and, by extension, consumers.

Today, The Washington Post's Timothy B. Lee offered a detailed report on the substantive and practical impact of this latest TLI issue:

The paper is less an academic study than a work of advocacy. It tells the now-familiar story of how patent trolls make no useful products themselves but use the courts to extract cash from legitimate businesses. The document is stuffed with insets denouncing people Manhattan regards as patent-trolling villains, complete with unflattering caricatures.

Chicago litigator Raymond Niro is described as the "Original King of the Patent Trolls." A company called MPHJ is accused of operating a "scanner shakedown." And the study describes how federal courts in the Eastern District of Texas adopted patent-friendly rules that have made it the "rocket docket" for patent lawsuits.

Ultimately, the details of the paper are less important than who is publishing it. The Manhattan Institute is a prominent think tank with deep ties to conservative elites and the business community. The study's publication is another sign that the political right is paying attention to the patent system's growing dysfunction. And given that the Obama administration has endorsed a slate of patent reforms similar to those the Manhattan Institute favors, there's a real chance of change actually happening.

It might not be the most glowing endorsement of the Manhattan Institute itself, but it highlights one of the most important facets of political discourse: the growing consensus. The growing consensus over patent reform lends credence to the hope for a stable, efficient patent system in the near future.

"Attorney Lorna Brown admits she took materials out of an Alameda County jail without showing them to guards after a visit with her then-client Yusuf Bey IV." "Brown admitted she met a member of the Bey family on an Oakland street corner two days later and handed off the papers. Brown said that she "got a really bad feeling after the transaction," but didn't do anything about it." Turns out those materials were Bey's witness hit instructions; Bey was hoping to escape a conviction for the murder of Oakland Post editor Chauncey Bailey by committing a few more murders.

Brown could have faced prosecution for her role in the affair, but cut a deal with the prosecutor: she would retire as an attorney, and there would be no criminal charges. Unfortunately, the prosecutor didn't structure the agreement as a deferred-prosecution agreement with a tolling of the statute of limitations, and when the statute of limitations expired, Brown reneged, and the prosecutor had to rely upon a complaint to disciplinary authorities.

Speaking of immigration fraud and asylum rubber-stamping, a government attorney tells me of her successful cross-examination of an asylum applicant at an immigration hearing who had claimed to demonstrate persecution because he had been "fatally injured" in a beating: "Sir, are you dead?" Nevertheless. asylum was granted; the government rarely appeals such determinations.

For all you interested readers out there, the Harvard Law School Forum on Corporate Governance and Financial Regulation has re-published a memorandum from the Manhattan Institute's 2013 Proxy Season Review.

This annual review analyzes various pre-voting facets of shareholder proposals, such as the types of proposals introduced, who sponsored them, and the rate at which they were introduced, as well as post-voting results. A particular emphasis is placed on proposals involving political spending and lobbying, which have constituted a plurality of all shareholder proposals introduced in 2012 and 2013.

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Last week, a jury agreed with the Securities and Exchange Commission that Fabrice Tourre, a former Goldman trader, had committed securities fraud. Tourre's violation, which could earn him a permanent bar from the securities industry and a penalty, was a failure to make clear to sophisticated parties in a complex transaction that another sophisticated party was betting against the transaction. In bringing cases like this, the SEC is encouraging market players, even sophisticated ones, to adopt the extremely naïve view that everybody is on the same side of a deal.

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Call your lawyer. A jaw-dropping essay in the New York Times by a Berkeley outside admissions reviewer documents the perversion of California Prop 209 to discriminate against Asians and Jews with superior admissions credentials. Earlier at POL.

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The National Association of Legal Fee Analysis is Terry Jesse, and, as best I can tell, no one else. Between June and August 2012, NALFA sent me multiple emails inviting me to pay a sizable sum to become a member of their organization and get referrals from them:

You've Been Nominated To The Attorney Fee Practice Group

You've been nominated to the Attorney Fee Practice Group. The Attorney Fee Practice Group is a practice group of qualified attorney fee experts, fee dispute arbitrators, and legal bill auditors.

In another 2012 email, Terry Jesse offered to interview me for a blog post to promote my victory in Bluetooth.

I refused to pay them money to get their endorsement, and ever since then, they've been attacking in little-read blog posts. If you read this post, you'd think I lost my Citigroup Securities objection and that NALFA was vindicated, when in fact they

endorsed the entirely-rejected testimony of a NALFA member, Kenneth Moscaret, who claimed that a $466/hour blended rate for low-level document review was reasonable.

In another post, NALFA accused me of filing a "boilerplate objection." They plainly hadn't even read my objection, and quickly edited the post without acknowledging the edit when I asked them to support that claim.

Fortunately, shareholders will receive an extra $26.7 million that NALFA and Terry Jesse thought should go to attorneys who billed 16,000 hours for document review done by attorneys hired after the case settled and then hid that from the judge. NALFA's jaw-dropping North-Korean-style propaganda to the contrary exposes them for the trial-lawyer shills that they are. No credible journalist should be relying upon them—indeed, it seems their pay-us-or-else business model merits some journalistic investigation.

Class-action settlements are different from other settlements. The parties to an ordinary settlement bargain away only their own rights--which is why ordinary settlements do not require court approval. In contrast, class-action settlements affect not only the interests of the parties and counsel who negotiate them, but also the interests of unnamed class members who by definition are not present during the negotiations. And thus there is always the danger that the parties and counsel will bargain away the interests of unnamed class members in order to maximize their own.

This case illustrates these dangers. The class is made up of consumers who purchased certain kinds of Pampers diapers between August 2008 and October 2011. The parties and their counsel negotiated a settlement that awards each of the named plaintiffs $1000 per "affected child," awards class counsel $2.73 million, and provides the unnamed class members with nothing but nearly worthless injunctive relief. The district court found that the settlement was fair and certified the settlement class. We disagree on both points, and reverse. ...

In sum, we reject the parties' assertions regarding the value of this settlement to unnamed class members. Those assertions are premised upon a fictive world, where harried parents of young children clip and retain Pampers UPC codes for years on end, where parents lack the sense (absent intervention by P&G) to call a doctor when their infant displays symptoms like boils and weeping discharge, where those same parents care as acutely as P&G does about every square centimeter of a Pampers box, and where parents regard Pampers.com, rather than Google, as their portal for important information about their children's health. The relief that this settlement provides to unnamed class members is illusory. But one fact about this settlement is concrete and indisputable: $2.73 million is $2.73 million.

Judge Cole, in dissent, would nevertheless have affirmed. He does not explain whether he thinks it is ever possible to have a settlement so biased towards class counsel at the expense of the class that it cannot be fair under Rule 23.

Yesterday, the Consumer Financial Protection Bureau won its latest battle against accountability. Federal District Court Judge Ellen Huvelle dismissed a constitutional challenge brought by eleven states, a small bank, and two nonprofits against three of Dodd-Frank's sixteen titles, including the title that established the CFPB. The government defendants, which included the CFPB and Treasury, argued that the case should be dismissed for lack of standing and lack of ripeness. The court agreed that plaintiffs had not been injured and their claims were not ripe for review, but employed some strained reasoning to get there. A few of the court's puzzling assertions are described below.

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The $100.3 million fee request by class counsel in In re Citigroup Securities Litigation was appalling:

Defendant Citigroup pays $25/hour to contract attorneys doing document review. Class counsel wanted an average of $466/hour with a 1.9 multiplier (i.e., about $900/hour) for their work.

Remarkably, 15% of class counsel's lodestar came from paper-shuffling work done after the case had settled, pure makework at zero risk to inflate the lodestar, much of which was done by newly hired contract attorneys. We didn't learn this until we got partial discovery nearly three months after the original objection deadline.

Too, the makework was done ludicrously inefficiently, with hundreds of hours billed to one-day deposition summaries.

Another $4 million was billed for fights between class counsel for who would represent the class.

The district court was having none of this, and sliced the lodestar in half. Unfortunately, what the court took away with one hand, the court gave partially back with the other: he proceeded to approve a multiplier of 2.8, higher than class counsel originally requested, so the fees were only cut $26.7 million. The court also chose to reject the overwhelming evidence that, in the relevant legal market, clients don't accept huge markups for contract attorneys doing document review, and permitted a $200/hour lodestar for that work. This, combined with the multiplier, means that class members were paying $560/hour for document review work, more than 22 times as much as the $25/hour that their adversary was paying. The court excused this by saying that Citigroup has market power to negotiate rates down—but surely, a client holding out the prospect of tens of thousands of hours contract attorney work has nearly as much market power to get the rate below a 2000% markup.

Moreover, a 2.8 multiplier makes no sense in the PSLRA context. Once a plaintiff survives a motion to dismiss, over 80% of cases settle and pay at least full lodestar. A multiplier half of 2.8 would be more than sufficient to induce qualified attorneys to litigate a securities case—even aside from the fact that the Supreme Court has suggested that multipliers greater than 1 are inappropriate except in exceptional circumstances.

Of greater concern is that the only repercussions class counsel suffered for what was essentially a fraud upon the court and their clients was to be awarded the same amount as if they hadn't engaged in bill-padding or failed to disclose the use of contract attorneys. What incentive will future class counsel have not to engage in the same shenanigans? Heads class counsel wins and rip their clients off by tens of millions of dollars; tails is a do-over. In Las Vegas, that's called playing with house money.

Of substantial note: class counsel defended their fee request excesses by saying everyone does it. And, as Lester Brickman documented in Lawyer Barons, everyone does do it, meaning that shareholders are getting ripped off by hundreds of millions, and perhaps billions, of dollars. Where are the pension funds and hedge funds and class representatives with fiduciary duties? Perhaps it doesn't make sense for just one to bear the burden of challenging fee awards (though had a for-profit firm taken up my offer to represent me on a contingent-fee basis in this case, they could be petitioning the court for a seven-figure award right now), but surely a consortium could ensure that every fee request in a megacase gets scrutiny that could save shareholders tens of millions of dollars a case. It's precisely because so few of these get challenged or even scrutinized that class counsel thought they could get away with such blatant abuses. There needs to be more than just Ted Frank challenging these abuses if they're going to stop.

(Relatedly, this case absolutely proves my stop whining about the legal job market point. Get three friends together, find a single pension fund or hedge fund, and offer to take up fee scrutiny on a contingent fee basis. Win one case a year, and you'll be making more money than me. And there's no reason you shouldn't win more than one case a year given how rampant these abuses are.)

One of the theories behind crowdfunding is that, by making information about a potential investment available to a large number of people who have the ability to interact and share information, ideas and decisions will bubble up from the crowd and will be recognized by the crowd as having merit.

A recent article in the Wall Street Journal demonstrates how "crowd wisdom" is improving decision-making in poker. It describes the growth in poker's popularity and how the influx of large numbers of new players is changing and improving the quality of decision-making in poker:

With 10 times more people seriously playing the game, the collective creativity and thinking power of the poker world has grown by at least an order of magnitude. The growth of poker theory is a perfect example of how innovation accelerates in interacting communities. Today's poker players are in a world-wide arms race to discover new ideas and refine their playing styles, led by the younger generation of more mathematically minded pros. And collective progress comes from the application of collective intelligence: Putting more minds to work on a problem makes the discovery of new and better solutions much more likely

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Yesterday, United States District Court Judge Richard Leon threw out the Fed's attempt to implement the so-called Durbin Amendment. The harshly worded opinion faulted the Fed's "utterly indefensible" approach for running "completely afoul of the text, design and purpose of the Durbin Amendment." Although aimed at "the seriously deficient nature of the regulations at issue," the court's ruling confirms the unworkability of the Durbin Amendment as drafted by Congress.